The Rise and Fall of Canadian Wheat Board CAES Fellows Paper 2015-2 William M. Miner The Rise and Fall of the Canadian Wheat Board by William M. Miner INTRODUCTIONi The Canadian Wheat Board was a product of the circumstances and events that shaped the grain sector of Western Canada. In the early decades of settlement of the Prairie region neither producers nor governments advocated a central selling agency for marketing grain produced in the New West, nor for any other commodity. Laissez faire, personal freedoms and open markets were the order of the new frontier. The pioneers did lobby governments to provide assistance in developing the basic infrastructure to enable them to produce and market grain, particularly access to rail, country and terminal elevators and foreign markets. They also pursued and gained a rules framework for the grain trade to provide legal, equitable and orderly access to markets. But it was regulatory and financial assistance that producers demanded and not direct intervention in the production and marketing of farm products. Likewise governments, federal and provincial, worked to create rail infrastructure and an economic framework to stimulate settlement, agricultural production, trade and commerce. The emphasis was on facilitating farm and private sector activity rather than direct government intervention. The Federal government did provide significant financial assistance to open the prairie region for settlement and trade, active immigration and rail construction programs with subsidies, land grants and Ministerial leadership. In return settlers were required to break the sod for cultivation, and railways agreed to the regulation of rates. While grain regulation preceded Western settlement and the first federal grain inspection act was passed in 1874 (C. Wilson 1978), these early regulations were consolidated in the Canada Grain Act of 1912. This Act represented the first principle step in regulating the industry under a Board of Grain Supervisors. It responded to over a decade of producer grievances and protests, and amendments to earlier regulations with respect to grading, weighing, handling and transporting grain. Producers also pressed the Federal government for grain terminals and the construction and ownership of country elevators but with only limited response. Private (line) elevator companies and eventually farm cooperative organizations developed the elevator system largely on their own. The Federal government did accept the leadership role in agricultural research by establishing the Dominion Experimental Farm Stations Act, 1886. The result was a healthy, expanding grain sector on the Canadian prairies by 1914. Two World Wars and an intervening market crash followed by a severe depression forced successive Governments to directly intervene in grain marketing and create a mechanism for this purpose – the Canadian Wheat Board (CWB). It operated initially on a voluntary basis and only in abnormal market circumstances since both Governments and most producers advocated free trade and individual choice. Grain exchanges existed in Canada and the United States (U.S.) providing for cash and futures trading, and farm organizations found alternative ways to market grain through “pooling” to share the risk and ensure an orderly flow to export points.ii There were international efforts to negotiate agreements to reduce trade barriers and coordinate grain policies to balance supply with demand and achieve equitable pricing. But rising farm productivity, driven by mechanization, new grain varieties and suitable farming methods, combined with policies of self-sufficiency and border control, led to persistent over-supply of wheat and marketing problems. Poverty and hunger existed in many developing countries and occasional food scarcity issues complicated the search for international solutions. Trade and 1 commodity agreements provided limited relief and gradually most governments, excepting in state-controlled economies, retreated from directly intervening in grain marketing. This is the story of the rise and fall of the CWB as the industry and the world around it evolved and changed. FIRST WORLD WAR The outbreak of the Great War in 1914 quickly altered the laissez-faire approach of governments in Canada, the United States, Australia and Britain, the latter being Canada’s major market for wheat. It also fed the emerging pressures from Western Canadian farm organizations for greater government involvement in grain handling and marketing. Canada and Australia were still in semi-colonial status. Britain established wartime control over the movement of wheat coming from the former colonies as they retained foreign affairs responsibilities for the Commonwealth. The Canadian West had surplus wheat supplies but was prevented from offering them freely under wartime control, and sales were being lost to U.S. and other exporters. As Britain began direct government purchasing from Canada and Australia, and urged their former colonies to create boards with powers to fix prices and distribution, the Canadian government turned to the Board of Grain Supervisors to set prices and regulate trade. Britain backed away from a commitment to take all of Canada’s surplus grain, so the Board’s powers were broadened to create a marketing board (C. Wilson 1978). This set the stage for the creation of the Canadian Wheat Board although it was not the Conservative Government’s intention to establish a permanent institution. The Winnipeg Grain Exchange (WGE) had terminated futures trading under wartime restrictions but the private trade, governments, and farm organizations expected to return to business as normal following the War. The circumstances of wartime control of grain distribution and food supplies also planted the seeds for international cooperation in grain marketing. Towards the end of the War, the allies, Britain, France, Italy and the U.S., agreed in 1918 to coordinate food policy and procurement. This continued in the intermediate post-war period as part of the allies supply and relief activities under the Peace Settlement. The U.S. formed a corporation with Government direction to handle surplus wheat. The first wheat board in Canada was established in 1919 under the War Measures Act. Although futures trading had been resumed in both countries, uncertainty over de-control in Europe, the need for credit, and market instability, forced the closure of futures trading. It is interesting the WGE asked the Canadian Government to take control of wheat marketing to “rescue” the futures market in those circumstances. As in the organization of the Board of Grain Supervisors, the members of the CWB were appointed from the grain industry and served on an honorary basis. The CWB of 1919 provided initial advances on grain deliveries, sales at the best price and distribution of final earnings through participation certificates. This followed similar arrangements set up in Australia and the U.S. during the War. Initial payments for wheat were also established for Ontario, Quebec and B.C. but government statements made it clear that the Board was a temporary arrangement and the marketing of wheat would be returned to the usual and normal methods of the pre-War period (C. Wilson 1978). The 1919 legislation made provision for the Government to continue the Board by proclamation in emergencies. The Board’s handling of the crop resulted in a final result above expectations and stimulated pressure from some farm organizations to continue its operations. This resulted in the Canadian Wheat Board Act of 1920 providing for its resumption by proclamation. Futures 2 trading for the 1920 crop had resumed in Chicago and open marketing returned in July to Canada as well. THE FOLLOWING DECADE Although the early 1920s was a period of general economic prosperity and favorable harvests in Western Canada, wheat prices steadily declined after a brief rally from sales of high quality wheat to U.S. millers. This stimulated strong representations from producer organizations for reinstatement of voluntary Board marketing. A major public debate ensued over the merits or otherwise of the central marketing of grain. It coincided with an election in 1921 and a minority Liberal administration replaced the Conservatives. The policy of the new government on the methods of marketing grain was similar to that of the outgoing administration, both opposed to direct involvement of the market except in unusual circumstances. On a global basis there was also a major debate over direct government involvement in economies, contrasting the socialist or communist policies with an open market, laissez-faire, entrepreneurial system. But a new National Progressive Party, spearheaded by Western farm organizations, had achieved a significant standing in the Canadian Parliament, and demanded tariff reductions to lower import costs and the re-establishment of the CWB on a voluntary basis. In addition, there was also the question of whether the compulsory control of grain marketing was constitutional. Legal experts considered Federal powers could not deny freedom of contract and the capacity to buy and sell, or exercise proprietary rights, but could regulate conditions of export and foreign relations (C. Wilson 1978). By the early 1920s producers had created their own cooperative elevator system to compete with the private line companies. The Progressives had failed to achieve neither their tariff reduction goals nor a continuation of a wheat board. Due to promises in